Canadian Dollar Rises Most Since January as Commodities Rebound

The Canadian dollar strengthened
the most in almost four months versus its U.S. counterpart as
crude oil, the nation’s largest export, rallied the most since
June and other commodities rose.

The currency strengthened against the majority of its most
traded peers this week as oil, gold and other commodities
rallied after plunging last week when China reported slower than
expected growth. Canada’s economy likely expanded 0.2 percent in
February, unchanged from the prior month, according to the
median estimate of 18 estimates in a Bloomberg survey before an
April 30 Statistics Canada report.

“The story of the week is just a rebound in commodity
prices,” David Bradley, director of foreign-exchange trading at
Bank of Nova Scotia (BNS)’s Scotia Capital unit, said yesterday by
phone from Toronto. “That’s all positive for Canada, and I
think that, combined with the fact the market was positioned the
wrong way, is just helping the loonie appreciate.”

The loonie, as the Canadian dollar is known for the image
of the waterfowl on the C$1 coin, rose 1 percent to C$1.0167 per
U.S. dollar in the past week, the biggest increase since the
five days ended Jan. 4. One loonie buys 98.36 U.S. cents.

Canada’s benchmark 10-year government bonds were little
changed, with yields at 1.71 percent. The 1.5 percent security
maturing in June 2023 cost C$98.13.

Futures of crude oil rose $5.53 percent to $92.88 per
barrel, the most since the five days ended June 29.

Futures Positions

Bets the Canadian dollar will fall versus its U.S. peer are
close to the highest level since 2007, data from the Washington-
based Commodity Futures Trading Commission show.

“The market has built up short Canadian positioning but
that positioning may mean there’s a bias for the market to cover
its shorts a little bit in the loonie and that’s maybe what
we’ve seen,” said Jane Foley, senior currency strategist at
Rabobank International, by phone from London. “At the same time
the market perhaps feels too long dollars generally and I think
that is supportive Canadian dollars versus the U.S.”

The difference in the number of wagers on a decline in the
Canadian dollar compared with those on a gain -- so-called net
shorts -- totaled 71,679 contracts as of April 23 compared to
75,913 the week before, data from the CFTC show. As recently as
September, there was a net-long position of about 112,000
contracts, the sharpest reversal on record.

Risk Reversals

The cost to insure against the Canadian dollar falling
versus its U.S. counterpart fell to their lowest point in more
than a week. The three-month so-called 25-delta risk reversal
rate was 1.0275 percent, the lowest point since April 15. Risk
reversals measure the premium on options contracts to sell
Canadian dollars versus buying U.S. contracts that do the
opposite.

Gold rose 4.1 percent, its biggest weekly jump since the
five days ended January 27, 2012, after falling the most in 33
years last week.

The Standard & Poor’s GSCI Index of 24 commodities rose 2.4
percent.

Implied volatility for three-month options on the Canadian
dollar versus its U.S. counterpart reached 5.91 percent, the
lowest since February. Implied volatility, which traders quote
and use to set option prices, signals the expected pace of
currency swings.

“You’ve seen a rebound in gold, you’ve seen a rebound in
crude and commodities and I think that’s helped stem the tide to
a weaker Canada for the time being,” said Matthew Perrier,
director of foreign-exchange trading at Bank of Montreal, by
phone from Toronto. “If you look at the early part of the week
you had quite a few attempts to take Canada weaker, through the
upper end of the range and failed, and yesterday I think we just
saw a little bit of short term capitulation.”

Retail Sales

Canadian retail sales rose for a second month in February,
registering the biggest two-month gain since 2011. Sales climbed
0.8 percent to C$39.5 billion ($38.4 billion), Statistics Canada
said April 23 in Ottawa, following a revised increase of 0.9
percent in the prior month. Economists surveyed by Bloomberg
News forecast a 0.3 percent increase, based on the median of 21
projections.

The Canadian dollar is up 1.3 percent in the last three
months against nine other developed-nation currencies tracked by
the Bloomberg Correlation Weighted Index. The U.S. dollar is up
2.5 percent and the Australian dollar has risen 0.9 percent.